OPEC and the Global Market
Its headquarter at Vienna, Austria. As per 2018 reports, OPEC’s 15 member states accounted for about 44 percent of global oil production as well as 82% proven oil reserves making the organization more influence on world oil prices. The stated mission of OPEC is to coordinate and unify the petroleum policies of its member states, through stabilization of market prices of oil. Furthermore, the organization is significant in the provision of information on the international oil market. Today OPEC has seven African, two South American and six middle east countries. At one time united State court pronounced that OPEC is protected by foreign sovereign law, making it unreached by competition laws governing commercial law (Ratti & Vespigna, 2015). In the world of business, one would expect a cartel to raise its product prices and share the market with other competitors.
Similar OPEC as discussed above clearly shows that they are in possession of controlling global oil price, therefore, it is not exceptional. The organization in most case have been referred as cartel blamed for the quadrupling of crude oil prices in 1974. Many have questioned whether the organization is taking advantage of political and conflicts to increase oil price or increase the market price by curbing its production. The main aim of forming a cartel organization is to push prices of its product higher than they should be under the competitive market condition, thus, reap maximizing the profits. Cartel attempts to create a monopoly among the producers is to trick monopolists approach of lowering production cost and yet high revenue pulled off (Carbaugh, 2017).
OPEC is frequently as cartel organization; it seems it has not reached a cartel due to several challenges in uniting its members to follow the organization quota output. Though they control almost 70% world oil reserves and a half supply of crude oil, which appears to influence the market and decrease their share production along with an increase in their share reserves, which is consistent with cartels behavior. The OPEC has faced many challenges for the past ten years in global market share due to the following; leadership, number of sellers, cost and demand differences, substitute goods and potential competition (Lin & Okonkwo, 2015). Thirdly, cost and demand differences. In the global market, OPEC has been facing a challenge in implementing its directive due to member states’ difference in cost and demands.
This makes OPEC implement its monopolistic approach as a cartel. For instance, at a different occasion that OPEC members have ignored its directive of rationing the output quota. In price collapse in 1982, Saudi Arabia as dominant producer founded that price increase would hurt their economy for long-term than reducing the oil price due to increase in non-OPEC supply, which OPEC had recommended (Lin, 2014). In conclusion, like any other cartel, OPEC exists to control global oil market and their production by minimizing the competition between its members, who control almost 50% of crude oil market and 80% reserves oil. Though there exist competitors like the United States and China as well as present substitutes, OPEC still leads the market in energy (Lin, 2014). The organization has been able to dodge this bullet due to it controlled the cheapest oil.
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